Mereo BioPharma

Merger with NASDAQ-listed OncoMed

Lighthouse | 7 December 2018

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  • Mereo BioPharma has announced that it will merge with OncoMed Pharmaceuticals through the issuance of new Mereo shares (in the form of ADRs). The deal is anticipated to close in H119, with a final ownership split of 75% Mereo/25% OncoMed.
  • The total consideration of $57.4m represents a 34% premium to OncoMed’s market cap of $42.9m on 4 December. There are also CVR (Contingent Value Rights) associated with two OncoMed clinical assets.
  • The TIGIT CVR relates to a $35m milestone if Celgene opts-in for the etiglimab antibody (currently in Phase Ia) before end-2019. CVR holders will receive ADRs equivalent of 100% of this payment, with the cash retained by the company. The CVRs are subject to a dilution cap such that the resulting ADRs cannot represent more than 40% of the enlarged shareholder capital.
  • The NAVI CVR refers to progress in partnering the navicixizumab programme (Phase Ib) with 70% of any milestone payments received for five years post-completion being received by OncoMed shareholders (subject to a cap of c$80m), with the balance retained by the company.
  • Mereo’s management will assume control of OncoMed on completion, with two current OncoMed board members joining an enlarged Mereo board. OncoMed will become a US subsidiary of Mereo. Mereo’s head office will remain in London, with an operational facility in Redwood, California.
  • OncoMed is targeting to have net cash of $38m at completion and around 23.7m new Mereo shares are expected to be issued. The number of shares issued will be adjusted if the actual net cash varies up or down (with a reverse ratchet if cash is below $36.5m).
  • We forecast that the current Mereo business should have cash of over £25m at end-2018, suggesting that, post-deal, its cash runway will extend into 2020 irrespective of any licencing deals (associated with either Mereo or OncoMed assets) or other payments.

Trinity Delta view: This merger achieves a number of strategic objectives: the cash resources extend Mereo’s runway through 2020; the NASDAQ listing will help raise Mereo’s profile in the US (aiding potential future fund raises and deal flows); it provides an experienced development and regulatory infrastructure; and finally, the additional ADR shareholders should help boost liquidity.

We currently value Mereo BioPharma at 615p/share (see initiation dated 24 September). Aside from the expected H119 completion of the merger, subject to OncoMed shareholder approval, there are numerous significant share price catalysts in the coming months. These include 12-month data from the Phase IIb extension study with BGS-649 (late-2018), first results from the Phase IIb study with BPS-804 and Phase II data for MPH-966 (both H219), and also the potential out-licensing of BCT-197.



7 December 2018

Market Cap£140m
Primary exchangeAIM London
Company CodeMPH
Corporate clientYes

Company description

Mereo BioPharma develops and commercialises innovative therapeutics addressing rare and specialty diseases. These are acquired or licensed in at clinical stages from large pharmaceutical companies. The portfolio consists of four compounds that are progressing through late clinical development.


Mick Cooper PhD
+44 (0) 20 3637 5042

Lala Gregorek
+44 (0) 20 3637 5043


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